Some CEOs of local nonprofit agencies were clearly uncomfortable (“it doesn’t feel good,” one executive said) with The Gazette’s recent inquiries into their pay. They wondered why The Gazette wasn’t also publishing the salaries of private-sector executives.
Theirs is an understandable response, though one that misses the point of last Sunday’s story, “Compensation questions.”
We publicized these salaries because nonprofits are, well, just that. They exist not to make money but to make the community a better place, often with a mission to help impoverished families and those with disabilities. In serving the community’s most vulnerable, nonprofits have a unique responsibility, resembling in many ways government safety nets.
Indeed, many nonprofits receive government grants and depend on donations from individuals who believe in the agencies’ missions. Along with the general public, these donors deserve to know how local nonprofits are spending funds. If some executives are receiving oversized paychecks, donors have the right to withhold future contributions and seek to hold agencies accountable.
Furthermore, many nonprofits have tax-exempt status, meaning the taxpayer picks up the tab for government services extended to these organizations. In the vast majority of cases, local nonprofits do an exceptional job of realizing their missions, and they in fact reduce the community’s tax burden by assisting those who would otherwise sap government resources. But if an organization for whatever reason fails in its mission, this becomes the taxpayers’ business.
The Internal Revenue Services has a rule prohibiting excess compensation for tax-exempt organizations. Executives are to earn “reasonable compensation,” though the IRS doesn’t define “reasonable.” We obtained salary information from the organizations’ 990 tax forms, which anyone can download from the internet.
Some executives said The Gazette should have compared their salaries to private-sector pay, but with the exception of publicly-traded companies, salaries of private-sector executives are kept confidential. But even if these salaries were publicly available, it would be disingenuous to treat private enterprises like nonprofit ones. Most private enterprises don’t have a service-oriented mission, and most of them pay taxes.
In defense of nonprofit executives who feel The Gazette singled them out, it’s a misconception that nonprofits run mainly on the goodwill of volunteers. Sure, volunteers are a critical component of these organizations, but they aren’t an organization’s backbone. Talented people must be in place to coordinate volunteers and do less glamorous but important work, such as filing 990 forms.
Nonprofits are competing with for-profit entities for talent, and they must be able to offer comparable compensation packages. Paying an executive too little can be just as problematic as paying too much. While those executives with the largest salaries receive the most attention, underpaying executives should also be a concern. An underpaid staff can lead to high turnover, making an organization less effective.
The Gazette writes many stories about the extraordinary work of local nonprofits, and we will continue to do so. We also plan to continue to publicize nonprofit CEO pay. Our advice to executives who don’t like it is simple: Get used to it. Transparency is almost always in the public’s interest and in this case also is in the interest of donors and governments who contribute to local nonprofits’ budgets.